2007 Annual Report

B U I L D I N G F O R T H E F U T U R E

Building

for the future. We began

2007 with a mindset that the

coming 12 months would be a

“BU I L DI N G yE aR.”

We wanted to strategically

position the company for the

future and continue to build on

the growth projects we

implemented in 2006.

C O N T I N U E D …

2 C R O S S T E X

’04 ’05 ’06 ’07

We changed the way we manage our business wi th the

introduct ion of our Asset Teams, who took

responsibility for our assets and looked for new

ways to enhance them and grow organically.

We added new teammates as we continued to

grow our company with the best and brightest

people in the business. We executed an organic

capital program of over $400 mil l ion as we

drove improved returns on invested capital.

We continued to increase distributions and

dividends from the Corporation, and set new

records for distributable cash flow in each of

the second, third and fourth quarters.

In a l l , we have made great progress. By

focus ing on execut ion , we have ach ieved

remarkable results in a relatively short t ime.

What may have seemed like a distant goal in

2006 is now reality.

We believe that what we’ve done is define

our future.

asset Teams Drive Growth Strategy

The key to our growth s t ra tegy and our

pursuit of excellence is our Asset Teams. We

bel ieve that this approach is a great way to

grow our business and to deliver results that

maximize value.

The Asset Team structure allows us to have

balanced growth across all our assets in North

Texas and Louis iana, a long the Gulf Coast

or wherever we do business. Asset Teams

work because they require members to be

owners who are accountable. Each asset is

run as a business. Frequent communication,

collaboration and teamwork are built in, and

we believe that this sort of team ownership is

crucial to the success of any of our assets.

Back in the early days of Crosstex, when

we had only a small set of assets, the entire

company was an asset team. Each person filled

a particular role to ensure the success of those

assets. Communication among our small group

X T E X & X T X IM a R K E TC a P I T a L I Z a T I O N

Dollars in millions

Crosstex Energy, L.P.XTEX

Crosstex Energy, Inc.XTXI

’04 ’05 ’06 ’07

C O N T I N U E D F R O M I N S I D E F R O N T C O V E R …

The asset Team structure allows us to have balanced growth wherever we do business.

$600 $500

$800

$1,500$1,700

$900

$1,600$1,400

Crosstex is committed to meeting future

transportation demand in North Texas.

C R O S S T E X 5

of employees was essential. The expertise of

each team member was vital in meeting the

needs of the assets.

Through the introduction of the Asset Team

s t ra tegy, we are s t r i v ing to dup l ica te the

ent repreneur ia l sp i r i t o f those ear ly days.

Each team comprises indiv iduals from four

primary disciplines, Corporate Development,

Engineer ing, Operat ions and Commercia l ,

each supported by various functional areas.

Because every individual takes ownership, we

can manage our assets effectively with a keen

eye on the bottom line.

The story of each Asset Team is now the

measuring stick by which we judge our success

as a company. For 2007, we believe that our

Asset Teams best tell the story of the past year.

North Texas – Barnett Shale Creating New Opportunities

North Texas continues to be an exciting area

of development for Crosstex. Our operations

in the area, including our North Texas Pipeline

(NTPL), North Texas gathering assets and the

Parker County processing facilities, continue

to perform well. The Barnett Shale play has

exceeded all expectations and proves why it is

the hottest natural gas play in the United States.

At the end of fourth quarter 2007, the basin was

producing approximately 3.0 Bcf/d, up from 1.8

Bcf/d at year-end 2006.

Cross te x i s commi t t ed to g row ing and

developing the necessary midstream infrastruc-

ture to meet future transportation demand in

N O R T H T E X a Sa S S E T T E a M

6 C R O S S T E X

North Texas. In February of 2008, our NTPL was

flowing over 360,000 MMBtu/d, and is quickly

approaching its capacity of 375,000 MMBtu/d.

Volumes on our North Texas gathering system

have more than tripled since mid-2006, averag-

ing over 400,000 MMBtu/d in Q4 2007 versus

115,000 MMBtu/d at the time of acquisition.

We have connected more than 280 wells to our

gathering systems, approximately 200 of them

in 2007. We began construction in Q3 of a new

$80 mill ion gas gathering system in Johnson

County, and began in September operating our

new 200 MMcf/d Silver Creek processing facil-

ity in Parker County.

Louisiana – Optimizing Our Systems

The cu r r en t g row th i n e xp l o r a t i on and

production activity in Louisiana has dovetailed

perfectly with the location of our assets, and we

have a full inventory of organic growth projects

to enhance our position.

On our 2,000-mile Crosstex LIG system, we

are consistently flowing at about 1 BBTu/d, and

increased drilling activity throughout Louisiana

is creat ing opportuni t ies for addit ional gas

supply. Our new 24-inch Red River Lateral

has created much-needed takeaway capacity

in northern Louisiana, where dri l l ing activity

continues at high levels. Our LIG processing

assets in Louisiana are essentially full, so we

are optimizing partnerships with our processing

assets in southern Louisiana to connect rich

onshore suppl ies to them through the LIG

system. In addition, we have connected new

Gulf of Mexico production to these assets.

Treating – Leading the Industry and Still Growing

Treating continues to be a vital operation for

Crosstex, contributing more than $34 mill ion

annually to our operating income. At the end of

Q4 2007, we had nearly 200 treating and dew

’03 ’04 ’05 ’06 ’07

X T E X & X T X IT R E a T I N G P L a N T S I N S E R V I C E

X T E X & X T X IG R O S S M a R G I N

Dollars in hundred thousands

’03 ’04 ’05 ’06 ’07

$62

50

75

105

190 190

$115

$163

$273

$384

C R O S S T E X L I Ga S S E T T E a M

C R O S S T E X 11

point control plants in service. Crosstex is the

industry leader in amine treating, and our dew

point control business has grown rapidly.

We cont inue to aggressively pursue new

business throughout our systems. We have

instal led two new amine plants at our Blue

Mound site in North Texas, and have agreed

to deals with a major Barnett Shale player for

dew point control units in the region. Treating

also continues to investigate new and emerging

business opportunities in the Fayetteville and

New Albany Shales.

South Texas – Better Serving Our Customers

Our 1,370 miles of South Texas pipeline run

through some of the most prolific gas-producing

areas in the region. We have cont inued to

improve and enhance exist ing operations in

the area to add value to our system. In 2007,

we made a firm commitment to growth in the

region by bringing on new people with extensive

experience and established relationships in the

area, and we are seeing the benefits.

In addition, we have completed enhancements

to our systems, including our Gregory 10-inch

loop line, which has facilitated new business

re la t ionsh ips in the reg ion . Th is upgrade

has al leviated bott lenecks into our Gregory

processing facility, increasing inlet capacity and

creating access to more prolific production near

the plant.

X T E X & X T X IM I L E S O F P I P E L I N E

’03 ’04 ’05 ’06 ’07

S O U T H L O U I S I a N a P R O C E S S I N G a S S E T T E a M

2,750

4,5004,900 5,100

5,400

We have continued to improve and enhance our

existing operations to add value to our system.

12 C R O S S T E X

Mississippi/alabama –Realizing Record Results

Crosstex operates the largest in t rastate

pipel ine in Mississ ippi , ut i l i z ing about 600

mi les of 8- to 20- inch l ines. Our assets in

Mississippi and Alabama continue to perform

above expectations, posting record financial

earnings and volumes in 2007. Increased drilling

activity in the area has generated new business

opportun i t ies across the region, inc luding

system expansion and amine treating facilities.

We are looping our Miss iss ippi System to

optimize and increase our pipeline capacity, and

we are planning connections to major interstate

pipelines in the area.

East Texas – Ramping Up To Meet Demand

East Texas dr i l l i ng ac t i v i t y had a ma jo r

resurgence in 2007, and Crosstex is ramping

up to meet the increased demand for services.

Our Har r i son Sys tem i s runn ing a t nea r-

maximum capacity of about 50 MMcf/d, and we

are looping the system to meet the increased

supply. Throughput capacity on the system is

anticipated to be 150 MMcf/d when the looping

is complete. We are also evaluating the addition

of a 100 MMcf/d cryogenic processing plant

and are installing two refrigeration units on the

system while awaiting the new cryogenic plant.

arkoma – Increasing Shale activity

Crosstex is excited about the growth of the

Woodford Shale in Oklahoma, and we feel that

our Arkoma System is ideally situated to take

advantage of increased activity. We’ve mobilized

our personnel and resources on the western end

of our system to meet the anticipated growth.

’03 ’04 ’05 ’06 ’07

X T E X & X T X IE M P L O y E EC O U N T

S O U T H T E X a Sa S S E T T E a M

190

320

500

600

700+

Our assets in Mississippi and alabama continue to perform above expectations, posting record financial earnings and volumes in 2007.

C R O S S T E X 1514 C R O S S T E X

In al l , 2007 was an extraordinary year for

Crosstex. In 2005 and 2006, we made the

largest acquisitions in the company’s history.

The year 2007 was about del iver ing on the

potential of these great new assets, serving as

a bridge that connects us from the foundation

set in 2006 to today. Our aggressive organic

growth strategy is paying dividends throughout

our company, inc lud ing the successes o f

our Red River Lateral in northern Louisiana

and our improvements to our Eunice plant in

southern Louisiana.

The pas t year has no t been w i thou t i t s

obs tac l es . Bu t we con t i nue t o mee t ou r

chal lenges through constant self-evaluation

and improvement: We’re strengthening our

organization from the bottom up. Our Asset

Team strategy has improved communication,

fostered employee ownership and given our

assets the attention they deserve. Our recruiting

and training programs are ensuring that we

find the best and the brightest, bring them to

Crosstex, and develop them into our future

leaders. Our corporate culture is unique in the

industry, and we believe that it will continue to

attract people to work at Crosstex and stay for

the course of their careers.

When 2007 began, it seemed to us that we

were enter ing a tunnel . We had just made

major investments to build for our future, but

we could not be certain of what was ahead.

The pinpoint of l ight at the end of the tunnel

fueled our opt imism. We see now that i t is

growing, and that the future for Crosstex is

brighter than ever.

I’m thankful to all of our team members for their

passion, perseverance and hard work that have

made Crosstex the company it is today. Without

their ownership and dedication, none of what we

have accomplished would have been possible.

I’m also thankful to you for your confidence

in Crosstex and for entrust ing us with your

investment. We will work tirelessly to continue to

earn your confidence in 2008 and beyond.

X T E XD I S T R I B U T a B L E C a S H F L O W

Dollars in millions

37.24

31.02

Equity Price Performance

B a R R y E . D a V I SP R E S I D E N T a n d C E O

$75

$70

$65

$60

$55

$50

$45

$40

$35

$30

$25

$20

$15

$10

$5

$0

12

.12

.02

4.1

.03

7.1

.03

10

.1.0

3

1.1

.04

4.1

.04

7.1

.04

10

.1.0

4

1.1

.05

4.1

.05

7.1

.05

10

.1.0

5

1.3

.06

4.3

.06

7.3

.06

10

.2.0

6

1.3

.07

3.3

0.0

7

6.2

9.0

7

9.2

8.0

7

12

.31

.07

Uni

t /

Sha

re P

rice

Crosstex Energy, LP Crosstex Energy, Inc.

8.8.05: $42.25Announced Agreement to Acquire El Paso Assets

5.2.06: $36.60Announced Agreement to Acquire Chief Midstream Assets

2.17.04: $24.50Acquired LIG System from AEP

6.30.03: $16.40Closed DEFS Acquisition

1.13.04: XTXI IPO at $6.50 per Share (Split Adjusted)

12.12.02: XTEX IPO at $10.00 per Unit (Split Adjusted)

Q2.04 Q4.04 Q2.05 Q4.05 Q2.06 Q4.06 Q2.07 Q4.07

$50.0

$37.5

$25.0

$12.5

$0

President’s Letter

B R y a N H . L a W R E N C E

Chairman of the Board

(XTXI, XTEX)

C E C I L E .M a R T I N , J R .

Director

(XTXI, XTEX)

R O B E R T F .M U R C H I S O N

Director

(XTXI, XTEX)

K y L E D .V a N N

Director

(XTEX)

R H y S J . B E S T

Director

(XTEX)

J a M E S C .C R a I N

Director

(XTXI, XTEX)

B a R R y E .D a V I S

Director, President

& CEO

(XTXI, XTEX)

L E L D O N E .E C H O L S

Director

(XTXI, XTEX)

S H E L D O N B .L U B a R

Director

(XTXI, XTEX)

J a C K M . L a F I E L DE x e c u t i v e V i c e P r e s i d e n t ,C o r p o r a t e D e v e l o p m e n t

B a R R y E . D a V I SP r e s i d e n t a n d C E O

W I L L I a M W . D a V I SE x e c u t i v e V i c e P r e s i d e n t a n d C F O

J O E a . D a V I SE x e c u t i v e V i c e P r e s i d e n t a n d G e n e r a l C o u n s e l

R O B E R T S . P U R G a S O NE x e c u t i v e V i c e P r e s i d e n t a n d C O O

UNITHOLDER & STOCKHOLDER INFORMATION

E X C H A N G E L I S T I N G

Crosstex Energy, Inc. common shares are listed on the

NASDAQ national market under the symbol XTXI.

Crosstex Energy, LP common units are listed on the

NASDAQ national market under the symbol XTEX.

T R A N S F E R A G E N T , U N I T H O L D E R

& S T O C K H O L D E R R E C O R D S

American Stock Transfer & Trust Company

59 Maiden Lane

Plaza Level

New York, NY 10038

212.936.5100

www.amstock.com

A U D I T O R S

KPMG LLP

I N V E S T O R I N F O R M A T I O N

Copies of annual reports, press releases and other

publications are available without charge from:

Crosstex Energy

Investor Relations

2501 Cedar Springs, Suite 100

Dallas, Texas 75201

214.953.9500

214.953.9501 FAX

W E B A D D R E S S

www.crosstexenergy.com

Refer to our web site for:

- Company News

- Earnings Calls Schedules

- Press Releases

- K-1 Information

- Distribution & Dividend Information

K-1s were mailed to unitholders in February 2008.

This Annual Report is distributed with the SEC Form 10-K for Crosstex Energy, Inc. and Crosstex Energy,

L.P., which are incorporated in this Annual Report by this reference. This Annual Report is subject to the

SEC Form 10-K reports, each of which includes a more complete description of each company’s business

and factors that may affect each company, specifically including those matters described in the section titled

“Risk Factors.” If the SEC Form 10-K reports are not included, copies are available at the Company’s web

site (www.crosstexenergy.com) or by contacting Crosstex’s Investor Relations Department.

Board of Directors

Executive Management Team (L-R)

2501 Cedar Spr ings , Su i t e 100 Da l l a s , Texas 75201 214 .953 .9500 www.cross t exenergy. com